Chairman of CSX warns of regulatory ‘creep and drift’

Senior Partner at Maples and Calder, and Chairman of
the Cayman Islands Stock Exchange, Anthony Travers
spoke at the Compliance Conference last week and 
pointed a finger at intrusive regulation

Monday,  February 28, 2005

As a senior partner with Maples and Calder, one of the world’s largest law firms dealing with the offshore financial sector and key sponsors of the Regional Caribbean Conference in the Cayman Islands, Anthony Travers’ speech was always going to be worth listening to.

A veteran of the law firm he has been in the Cayman Islands for 30 years, since 1975 and a partner since 1977. He has extensive knowledge of all aspects of Cayman Islands law and has worked closely with the Government in the development of Cayman Islands legislation. He has written numerous articles and speaks regularly at conferences and seminars. 

Mr Travers is a member of the Law Society of England and Wales, the Cayman Islands Law Society, the Caymanian Bar Association, STEP and the Chairman of the Cayman Islands Stock Exchange.

His experience therefore makes him well placed to form the somewhat controversial opinions he aired at the conference last Friday, 25 February. 

Prior to his appearance at the conference Mr Travers, commenting on his speech and the problems of over regulation said: “The Cayman Islands is in the process of getting it wrong.”

His concerns are primarily with what he has cited as “intrusive regulation.” 

During his speech to industry experts from all over the region at the compliance conference he told the attendees that considering the recent onshore corporate failures of notable companies such as Enron and Parmalat, that his firm’s sponsorship of the conference was indeed timely with the need to re-establish the demarcation lines with respect to regulation.

“We need to focus on the paradox that the major failures, whether it is Enron, Parmalat, the UK split capital trust, insurance or pension debacles, have all occurred in heavily regulated jurisdictions. Yet these failures have predictably been seized on by onshore regulatory authorities as reasons why pan global regulation should be extended.

“ We need to ask the question, why?” said Mr Travers.

“We have seen troubling evidence of this regulatory ‘creep and drift’ too from the Cayman Islands Monetary Authority.”

He raised concerns that CIMA like other authorities believes regulation improves the reputation and financial standing of financial centres and that while it may do so in the eyes of other regulators, it wasn’t so in the eyes of the “international institutions which have become comfortable with the Cayman Islands and their appropriate and non-intrusive regulation.”

These organisations Mr Travers noted, find the notion of regulation to improve investor protection to be non-competitive, saying that he hoped some clear principles would be re-established at the conference, in particular Cayman’s lead position with regard to anti-money laundering legislation and the know-your-client due diligence.

“It is understood that Cayman must be protected from wrongdoers and in the implementation of this legislation, Cayman shows itself to be a world leader.

“There is also no doubt in relation to the area of offshore banking, that the Basle accords form an international framework which is required of a leading financial centre and which forms an important part of the international banking architecture.”

He warned however of the dangers of misplaced regulation and said it would act as a significant disincentive to the further development of the financial industry.

Mr Travers’ objections to the idea of certain regulations were not just about rejecting the idea of regulation for its own sake nor even that competitive jurisdictions were not implementing them, but that there is uniform agreement amongst asset managers that regulation is a wholly imperfect methodology for protecting against investor losses.
“Such regulation does not function effectively in the United Kingdom with 2000 personnel in the Financial Services Authority and the Cayman Islands certainly cannot afford any similar infrastructure costs,” said Mr Travers.

“The Cayman Islands Mutual Fund legislation, by way of example, was drafted on the very clear principle of "caveat emptor"; that is to say, full disclosure of the range of investment objectives in offering documentation and acceptance of the entire risk by the investor. 

“It is unreasonable to suppose that any regulatory authority can meaningfully affect or improve the nature of the investment decisions made in relation to funds marketed under that regime. The risk sits where it should, with the investor. Nor does it seem appropriate for a Monetary Authority to assume any of that risk by purporting to be involved in protecting the investor. 

“The fact that there have been so few failures in the Cayman Islands is testimony to the effectiveness of the current system,” he added.

While he noted that there is benefit in ensuring that those with criminal convictions or subject to prior regulatory sanction are not able to involve themselves in Cayman Islands’ investment structures, he added that Mutual Funds Law has provided for that test from inception.

“ Before further amendment is considered,” Mr Travers told conference delegates, “there needs to be a re-evaluation of why exactly the Mutual-Funds Law is as successful as it has been, with nearly 6,000 regulated funds domiciled in the Cayman Islands. 

“In 2004, more than 1100 new hedge funds were created, marking a 100 percent increase over the previous reporting period, thus the Cayman Islands is the base for over 65 percent of the world's hedge funds, in respect of which failures have been insignificant,” he added.

Mr Travers concluded his speech by pointing out that before new regulation is considered by any regulatory authority, there should be detailed analysis of the specific failure which it is intended to protect against and a case must be made that the proposed legislation would meet its intended effect.

“Given that recent onshore failures have all involved fraud, no such case can currently be made.”

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